Life insurance can serve many purposes, from providing financial protection for minor children to supplementing your retirement income. As you age, your life insurance needs tend to evolve. However, the need to plan for the potential impact of your untimely death is a constant.
Understanding the role that life insurance coverage can play at each stage of your life can help you make sure you’re properly protected. Here’s a look at how your needs may change and the types of life insurance you may consider at various stages throughout your lifetime.
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Single Young Adult, No Dependents
When you’re young and single without dependents, you may think there’s no need for life insurance coverage. This is also typically a time when money is tight, so it’s not surprising that purchasing a policy is sometimes not a priority. However, there are a few reasons you may consider purchasing coverage during this stage in your life.
For example, if you have a private student loan and a parent or other party has co-signed for it, the outstanding loan balance may not be discharged if you die. The same may be true for credit card debt. For this reason, you may consider a term life insurance policy with a death benefit large enough to pay off your outstanding debts.
Also, consider that the average cost of a funeral is around $7,800. A term life insurance policy’s death benefit can cover these costs so your loved ones don’t have to deal with the financial burden while they are also mourning your death. Since the cost of life insurance depends on your age and health, purchasing a policy in your early years could save you money by allowing you to lock in lower premiums.
Young Adult Couples
Once you’re married, or in a domestic partnership, life insurance coverage becomes important because you’re now sharing both income and debts. If you pass away, your spouse or partner may be responsible for the debt you leave behind while also dealing with the loss of half their household income.
Term life insurance is typically an affordable option for young couples. When calculating the amount of death benefit you need, consider your current outstanding debts, the amount needed to replace your income, and the potential cost of your funeral expenses.
Adults With Minor Children
When children come into the picture, providing for them typically becomes a priority. At this point, you may want to ensure you have coverage that lasts at least until they turn 18. In addition to choosing a death benefit that covers the loss of a parent’s income and your outstanding debts, you may also consider providing for additional expenses, such as the cost of college and future weddings.
It’s also important to make sure both parents have life insurance coverage. Even if you are a stay-at-home parent, your spouse needs to cover the costs of childcare and other household services you were providing. There’s also a chance that they may be unable to immediately return to work full time. Having an additional death benefit can give them the financial cushion they need so they can adjust to their new reality without additional financial strain.
At this stage of life, term insurance remains an affordable option. However, you may also consider a term/permanent combination policy, particularly if you may have longer-term financial concerns, such as supporting a child with special needs.
By the time you reach your 40s and 50s, you may have accumulated more assets and a larger financial cushion. However, you may also still have a mortgage, vehicle loans, credit card debt, and more. If your children are grown, you may find that you don’t need as much life insurance as you once did. Nonetheless, your life insurance can still provide important coverage, including income protection, debt payoffs, and final expense protection.
At this point, your term life insurance policies may also be coming to an end, making it important to re-evaluate your needs. You may decide to convert your term policies to permanent policies or let them lapse.
In some cases, a new permanent policy may be worth considering. This could include a whole life policy or a permanent life insurance policy with a long-term-care rider, which can help offset future expenses such as the cost of a nursing home or a home health aide.
Your Golden Years
As you reach your retirement years, your focus may shift toward securing your financial legacy. If you still have outstanding debts, life insurance coverage can help prevent them from being passed on to your loved ones.
While you may no longer need income protection, an insurance policy’s death benefit can become an inheritance for your children or grandchildren. However, if income is an issue, this may be the time to re-evaluate whether you need coverage at all. If you have paid off your debts, don’t have financial dependents, and have enough cash to cover final expense costs, then life insurance coverage may be unnecessary.
If you still have dependents or you’re concerned about the cost of final expenses, a term or permanent policy may help cover these costs.
Permanent life insurance with a cash value component can also be an attractive option for retirees. These policies provide lifelong coverage as long as you make the premium payments. They also allow you to access the cash value while you are still alive. This can help you supplement your retirement income or use it for unexpected medical expenses or other costs.
Evaluating Your Life Insurance Needs
Many people think of buying life insurance as a one-time task. However, as you can see, it’s common for your needs to change throughout your lifetime. The policies you purchased in your 30s may not be ideal as you approach your retirement years. Periodically evaluating your coverage can help you create an overall financial plan that fits your current needs and goals. If you haven’t reviewed your coverage recently, now may be a good time to take another look.